What stocks does the Partnership invest in?

Firstly the question may also be written as “What kind of business does the Partnership invests in?”. Remember, when one buys stocks of a company, one is buying a part the company, effectively becoming a part-owner of the company. Hence the term ‘public-listed company’ – the company is listed so that the general public can purchase part of the company previously owned only by the private owners/founders of the company.

On behalf of AIN Partnership, I invest the Partnership’s capital in stocks of good-standing Syariah-approved listed companies in Bursa Malaysia. In general, there are two types of companies which we are likely to invest in their stocks:

a) Stocks belonging to companies with foreseeable growing profit year after year that at the same time generate cash to their coffers. Remember, the reason why everyone wants to start a business is because they want to earn money, the same reason on why everyone had to work just to earn cash at the end of the month to buy foods, groceries, go vacation etc. In a business, these earnings is translated into how much cash can the business generate after all expenses, to keep the business grow and generate more cash in the future. And to generate more cash every year a business has to (at least) make sure they are more profitable every year. This is the kind of business that a sensible investor or individual wants and should own, but not at just any price. However, sometimes their stocks are temporarily mispriced against its true value. This can be due to unfavorable market sentiment or folly actions by current stockholders who may sell the stocks down because a chap in USA said something terrible about Malaysian economy (what does the fellow had to do with your invested money in a supposedly good company here in Malaysia?). Whatever the reasons are, I will only buy the stock at a mispriced pricing that I am very comfortable with. This is to ensure any mistakes that I make during the purchase of the stock will not be punished severely but if I am right then the potential profit is substantial to the Partnership.

b) Stocks of companies who may not fulfill my criteria above, but are severely mispriced against its balance sheet valuation. This type of stocks demand the greatest amount of careful analysis, because as a small fry retail investor like us, we may not know the exact reason the price is so low. For this reason, an investor must require a bigger margin of safety (a bigger discount to its supposed value) just to ensure that if he or she is wrong on the purchase, the losses may not be so terrible that the investor can lose sleep at night. In the other way, if the investor is right, at some time the price will be corrected by the market so he or she can sell the stocks at a decent return.

Personally I believe that cash employment to purchase stocks will generate the most favorable return when the price one pay for the stocks is fair, relative to its current valuation and the earnings potential of the company. Of course – the cheaper, the better.